If you’re buying Ford (NYSE:F) stock today, you’re speculating on a big future for electric cars.
Ford is planning to show an electric crossover SUV at an auto show early next year. It is building a network of 12,000 charging stations for it, and future electric vehicles. It will call its network FordPass.
The new Mach E will have Mustang styling, a 300-mile range and a Tesla (NASDAQ:TSLA) price of about $40,000. If that sounds high, consider that a 2018 Ford F-250 pick-up truck was selling today on Carvana (NYSE:CVNA) for $45,000.
Ford has bet $11 billion on electrics and hybrids under the name Project Edison. The Mach E will be the first of 16 electric vehicles it hopes to introduce by 2022. Within three years most of Ford’s product line will have electric versions.
Electric Vehicles Are the Future
The electric car market is growing. So far most of the growth is in China. The U.S. had 209,000 electrics delivered in the first half of the year, one-third of them were Tesla models.
But there may be as many as 40 different electric models on the road by 2025. Ford is betting a common platform it has endorsed with Volkswagen (OTCMKTS:VLKAY) will give it a leg-up on both electric and self-driving vehicles. Ford CEO Jim Hackett has called this the “biggest shift in in transportation” since Henry Ford’s Model T.
When the Model T came out in 1908 there were electric cars on the road. But the U.S. electric grid was still primitive, still mostly used for lighting. Gasoline was cheap, plentiful and easily available. That’s why the charging network, and self-charging kits Ford will produce for the home, are so important.
A Skeptical Market
The stock market doesn’t believe any of this. Since Hackett became CEO in May 2017 Ford stock is down 16.6% while the Dow Jones Industrial Average is up 28%. Even General Motors (NYSE:GM) is up 9%.
Ford continues to earn its 15 cents per share dividend most of the time, but the yield on that dividend is up to 6.6%, an indication the market doesn’t consider it sustainable. A string of poor quarterly results, including the June quarter’s 4 cents per share income, have the price-to-earnings ratio up over 16. Ford’s stock recently bounced off a 10-year low and opens for trade Oct. 18 at about $9.09 per share.
Ford is next expected to deliver earnings on Oct. 23, with 26 cents per share expected on revenue of $34.1 billion. Right now, Ford stock is selling for barely one-fourth its annual revenue. By contrast retailer Kohl’s (NYSE:KSS) sells for about half its revenue.
With the end of the GM strike in sight, Ford faces tough negotiations with the United Auto Workers, who will see the GM numbers as a benchmark.
Ford is also being hit by the U.S.-China trade war. Its sales in China dropped 30% in the third quarter.
The Bottom Line on Ford Stock
Despite all the bad news, more hedge funds have been buying Ford shares recently. There are even some analysts serving small investors who recommend the stock in the near term. Its big pick-up trucks and SUVs continue to sell, and the U.S. consumer remains flush, giving it a bridge to the electric future.
I’ve had Ford in my own retirement account, but the fall of the stock price didn’t make up for the dividend. I lost money and got out. Despite an incredible yield, Ford is still a speculation.
Dana Blankenhorn is a financial and technology journalist. He is the author of the historical mystery romance The Reluctant Detective Travels in Time available now at the Amazon Kindle store. Write him at firstname.lastname@example.org or follow him on Twitter at @danablankenhorn. As of this writing he owned no shares in companies mentioned in this story.